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CA Intermediate · Financial Management and Strategic Management · Types of Financing

A start-up with a promising technology but no operating history seeks funds from a specialised investor who takes an equity stake, provides managerial guidance and expects exit through an IPO or sale after several years. This source of finance is best described as:

This is venture capital financing. A venture capital investor takes an equity stake in a young high-risk, high-growth firm, offers management guidance, and plans to exit through an IPO or sale after some years. The other options are debt or short-term or receivable-based sources.

  1. AVenture capital financingCorrect
  2. BFactoring without recourse
  3. CBridge finance
  4. DDebenture financing

Explanation

Venture capital is equity-type funding for high-risk, high-growth young firms, often with management support and a planned exit. Factoring relates to receivables, bridge finance is short-term interim funding, and debentures are debt without equity participation.

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